Alberta – Defendants obtain stay after filing defence once they discover contract contained arbitration clause – #251

In Obcorp Holdings Inc v. Mammoet Canada Western Ltd, 2019 ABQB 960, Master B.W. Summers stayed litigation in favour of Defendants who, in “particularly unique” circumstances, had already pleaded to the action but did so unaware of the arbitration clause.  Based on uncontradicted evidence, Defendants had acted promptly upon learning of the arbitration clause included in an updated version of their contract communicated by Plaintiff during the document discovery phase and had proposed that the few court pleadings be used to frame the issues in arbitration.

Obcorp Holdings Inc. (“Plaintiff”) and Mammoet Canada Western Ltd and Mammoet AB Property Limited (“Defendants”) were parties to a joint venture.  Claiming that, due to Defendants’ misrepresentations, it had overpaid its share of property taxes with respect to lands under the joint venture, Plaintiff initiated court litigation on January 14, 2019 claiming reimbursement.  Defendants served a Statement of Defence on March 21, 2019.

Further to document requests and Plaintiff’s service of its affidavit of records, on June 27, 2019 Defendants’ counsel advised Plaintiff’s counsel that Defendants had learned that the joint venture contracts contained mandatory arbitration clauses.

[5] It is the uncontradicted affidavit evidence of the defendants that at the time that their statement of defence was filed they had not been able to locate a copy of the last of the joint venture contracts (called the “2009 Agreement”) which had a mandatory arbitration clause and consequently they were unaware of it. The defendants’ witness states that if he had known about the arbitration clause in the 2009 Agreement on or before filing the statement of defence, the defendants would have requested that the matter proceed to arbitration.

Upon receipt of the contract version containing the arbitration clause, Defendants advised Plaintiff of their intention to rely on the arbitration clause and sought Plaintiff’s consent to stay the action.   Defendants offered to use the existing pleadings for the purposes of defining the issues in the arbitration and would reciprocate Plaintiff’s filing of an affidavit of records, thereby eliminating any wasted expense.  Plaintiff refused.  Defendants applied for an order under section 7(1) of Alberta’s Arbitration Act, RSA 2000, c A-43 (“Arbitration Act”) to stay the action.

Master Summers noted that section 7(1) required that the court stay an action if the action was in respect of a matter which was to be submitted to arbitration and that section 7(2) set out five (5) instances in which the court could refuse to order a stay. 

Plaintiff explained that its resistance to a stay was made independent of the grounds in section 7(2), arguing that Defendants had attorned to the court’s jurisdiction.  Defendants argued that they had not waived their contractual right to arbitrate but had only failed to assert the right because they were not aware of the mandatory arbitration agreement. Defendants relied on Edmonton (City) v. Lafarge Canada Inc, 2015 ABQB 56 to establish that it had not attorned. Plaintiff distinguished its approach, arguing that it did not rely on waiver of the arbitration agreement but on attornment, invoking the distinction drawn in Fath v. Quadrant Construction Ltd, 2019 ABQB 151

Master Summers acknowledged the conflicting results in the cases cited the parties but remarked that the “circumstances in this case are particularly unique” which he described as “the defendants filing a statement of defence in ignorance that their dispute with the plaintiff is subject to a mandatory arbitration clause”.  Master Summers noted the conclusion, made in Bansal v. Ferrara Pan Candy Co Inc, 2014 ABQB 384 after a review of case law on attornment, that the circumstances of each particular case must be examined to assess whether a specific person has submitted to the jurisdiction of the court concerning the merits of the case.  He held that there had been no attornment.

[21] In this case, there is nothing unfair about staying this action in favour of arbitration. Mandatory arbitration is what the parties agreed upon under their joint venture contracts. Nor will there be anything lost. The parties may use their pleadings and the plaintiff’s affidavit of records in the arbitration.

In granting the stay, Master Summers noted that there was “nothing unfair” in granting the stay as the parties had agreed to arbitration.  As well, the materials filed to date in court could be repurposed for the arbitration.

Master Summers did award costs but did so in favour of Plaintiff.

[23] In this very unique case I award costs of this application to the plaintiff on the appropriate column. Although the plaintiff was not the successful party, the plaintiff was not the author of the circumstances that brought about this application to the court. The defendants were the ones responsible for this court application being necessary.

urbitral note – Defendants were authorized to invoke the mandatory arbitration clause despite having defended the action alleging breach of the contract(s) containing the arbitration clause.  The reasons highlight that the court was influenced by the uncontradicted evidence provided by Defendants regarding lack of knowledge, by how promptly Defendants acted and that the court pleadings could be repurposed for the arbitration and that.  As the Master noted, the case was “very unique”.